Wednesday, September 26, 2012

Attorney General Kamala D. Harris today announced that claim forms will be sent to approximately 432,584 California borrowers who lost their homes to foreclosure between January 1, 2008 and December 31, 2011 and may be eligible for a settlement payment under the $25 billion national mortgage foreclosure settlement. Below the detailed announcement from Sacramento.

Monday, September 24, 2012

Lately, especially after the settlement of Department of Justice (DOJ) and Attorney generals against the 5 major lenders, there has been a pronounced shift in the attitude how lenders treat short sale. In fact, the FHFA announced new guidelines to streamline short sale.

Sunday, September 16, 2012

Since the onset of housing crisis, there has been instances where homeowners who were not in distress made strategic defaults in order to get out of underwater homes. Although ethically and morally questionable, this practice is still practiced. It takes careful planning to exit from your current home into next home. Here is an interesting article from Inman News about the topic.

Tuesday, September 11, 2012

Nonprofit Counselors: Missing Link Between Borrower and Servicer?

By: Esther Cho 09/09/2012

Delinquent borrowers oftentimes make themselves as elusive and unavailable as possible when it comes to communicating with their servicers. During a panel at the Five Star Conference, industry experts discussed the reasons behind the difficulty in reaching borrowers.

Colleen Hernandez, CEO and president of the Homeownership Preservation Foundation (HPF), explained three main reasons why borrowers won’t respond or reach out to their servicer.
For one, when borrowers don’t have the money to bring their account current, then for them, it seems pointless to contact their servicer.

“They think that their servicer wants money, and, since a struggling homeowner often doesn’t have that money, they think, ‘What’s the point?’” said Hernandez in a follow-up email interview. “Additionally, many homeowners believe that calling their servicer will actually speed up the foreclosure process.”
A second reason is borrowers don’t know who to trust. With the countless scams that exist to target struggling homeowners, it can be difficult to know who is there to truly help.

Hernandez said that when she Googles foreclosure prevention every morning, she’s amazed by those who have morphed from yesterday’s name to today’s name based on headlines.
Hernandez said the third reason borrowers don’t reach out is they need help with more than their mortgage. Instead, they need a financial advisor who can look at the entire picture.

Additionally, Hernandez said, “What homeowners typically don’t understand is that, more than anything, servicers want performing loans and are often willing to explore ways in which they can bring a loan back to performing status and avoid a costly foreclosure.”
For borrowers, however, they are oftentimes in a situation where their loan has been sold several times to different servicers, in addition to the scammers reaching out to them.

To help borrowers get the information they need as they maneuver their way through confusing terrain, HPF is able to act as a bridge between borrowers and servicers.

“While many servicers now send out letters advising delinquent borrowers to contact them directly, they also recommend that homeowners contact a nonprofit housing counselor, like those available by calling the Homeowner’s HOPE Hotline at 888-995-HOPE. Homeowners often feel more comfortable speaking with someone who doesn’t have any ‘skin in the game’ and is providing honest, non-judgemental advice on what their options are, the potential impact on their family and their finances, and a lifeline to call for future questions,” said Hernandez.

Besides enlisting the help of a third-party counselor, another strategy to ensure borrowers get the information they need is face-to-face contact.
Jay Loeb, VP of Strategic Development at National Creditors Connection, explained that after the phone calls and letters have gone out and neither has worked, face-to-face contact can be another solution to engage borrowers. [Editor’s note: The Five Star Conference is hosted by The Five Star Institute, DS News’ parent company.]

Monday, September 10, 2012

Negative Equity and Its Impact on Current Loans: Report

By: Esther Cho 09/10/2012

Eighteen percent of current loans remain underwater, according to Lender Processing Services’ (LPS) July Mortgage Monitor report. In states where the percent of current loans sitting underwater is extremely high, the percentage of new problem loans was also higher.

For example, the state with the highest share of new problem loans was Nevada, where 54.7 percent of current loans are underwater, followed by Florida (33.1 percent), Arizona (28.4 percent), and Georgia (42.8 percent).

LPS also examined the relationship between high loan-to-value ratios (LTV) and the likelihood of becoming a new problem loan. For loans that had an LTV greater than 150 percent, 4.4 percent went from being current to delinquent.

For loans with an LTV of 110-120 percent, 2.2 percent became new problem loans.
“As negative equity increases, we see corresponding increases in the number of new problem loans. In Nevada and Florida, two of the states with the highest percentage of underwater borrowers, more than three percent of borrowers who were up to date on their payments are 60 or more days delinquent six months later. This suggests that further home price declines – should they occur – could jeopardize recent improvements,” explained Herb Blecher, senior vice president of LPS Applied Analytics.

Overall, the delinquency rate for July was 7.03 percent, a yearly drop of 11 percent and a 30 percent decline from the January 2010 peak.

The percent of inventory in foreclosure stood at 4.08 percent and remained mostly unchanged both monthly (-0.2 percent) and yearly (-0.9 percent).
July saw about 186,000 foreclosure starts, down 10.5 percent yearly but up 7.1 percent monthly. There were about twice as many foreclosure starts as foreclosure sales or liquidations, which numbered about 93,000.

Foreclosure inventory in judicial states continued to be elevated at 6.46 percent compared to non-judicial states (2.38 percent). Also, foreclosure sales was much lower in judicial states, where 2.09 percent of foreclosure inventory went to sale compared to 6.71 percent in non-judicial states.

Expiring Mortgage Debt Relief Act Fuels Strategic Default: Survey

By: Esther Cho 05/29/2012

A foreclosure prevention agency found that the pending expiration of the Mortgage Debt Relief Act of 2007 is prompting struggling homeowners to strategically default on their loan.

YouWalkAway.com conducted a national survey and found 34 percent of respondents indicated that the act, which is set to expire December 31, 2012, contributed to their decision to walk away sooner rather than later from their property. Those surveyed were YouWalkAway.com clients who were actively considering or navigating through the foreclosure process.

The Mortgage Debt Relief Act releases homeowners from the obligation of paying taxes on mortgage debt forgiven from a short sale, foreclosure, or modification. Taxpayers are eligible if the property is the primary residence.

“The survey results are not surprising; YouWalkAway.com saw a number of homeowners reach out to us in early and mid-2011 due to the impending 2012 deadline,” said Jon Maddux, CEO of YouWalkAway.com, in a release. “Many were prompted to begin the foreclosure process in 2011 in order to ensure their foreclosure is complete by the end of 2012.”

While the expiring act motivates homeowners to seek completion of the foreclosure process before the expiration date, for those who won’t qualify in time, Maddux said not extending the act will then cause short sales to stop immediately due to the fear of getting hit with a huge tax bill.

In addition, 78 percent of respondents from the YouWalkAway.com survey expressed intentions of walking away from their home. Of those, at least 74 percent would qualify for relief under the act.

“Potentially millions of people will find themselves stuck with a huge tax bill after foreclosure if the government doesn’t renew the Debt Relief Act at the end of 2012 or if they don’t finalize their foreclosure by that date. The bill may just expire, like when Congress chose not to renew the home buyer’s tax credit,” said Maddux.

Cheryl Gerhardt, a CPA who has worked with YouWalkAway.com clients, said about 80 percent of the people who approach her about foreclosure tax consequences qualify for the relief under the act.

“These are usually people who purchased during the height of the market from 2005 to 2007 and never had the opportunity to take out a second, whereas a few years ago clients who were getting foreclosed upon had made purchases in the early 2000’s, took out a home equity line of credit and could not qualify,” said Gerhardt.

In March, House Bill H.R. 4290, or Homeowner Tax Fairness Act, was introduced to extend the act to 2015. The bill is sponsored by Rep. James McDermott.

The Mortgage Relief Act was actually extended in October 2009, three months before the act’s expiration date.

YouWalkAway.com works with borrowers facing foreclosure as well as those opting to strategically default on their underwater homes. The survey the agency conducted reached out to 2108 borrowers and received responses from over 25 percent of those contacted.

Wednesday, September 5, 2012

Q: What should I be thinking about when it comes to deciding whether or not to short sell? In other words, what are the pros and cons of doing it now versus 3 or 4 years from now?

A: Short-term versus long-term planning is a great decision making exercise. Many times, when people ask me this question, what they’re really asking is, “Why wouldn’t I just short sell in a couple of years, because I’m not ready now?” It’s a fair enough question but is definitely one that requires some immediate attention, even if you choose not to do anything today.
Before we list off the pros and cons of each, there’s one crucial question that you’ll need to ask yourself and have an answer for! The question is, “Where do I want to be when all the house stuff is finished?” You can’t set a course if you don’t have an endpoint. So, whether your decision is to wipe the slate now and be able to buy again in two to three years or it’s to stay in the house as long as you can and then rent, you have to aim towards something.

Let’s start with the pros and cons of waiting for three or four years, they are…

Pros:

Get to stay in your house longer

Can keep the tax deductions homeownership brings

Leaves the door open for you to possibly keep the house

Avoids the embarrassment of your neighbors talking about your finances

Maintains the status quo (no changes, kids can stay at their school, etc.)

Cons:

Uncertainty of how you’ll be taxed

Banks may not allow short sales then

Rental application will look worse than for those who sold short a couple of years ago

Credit recovery can make this a seven year process (staying for three and up to four more for credit recovery)

You could’ve been done by now

Now, let’s see about doing something today…

Pros:

The Mortgage Forgiveness Debt Relief Act is still active

Credit recovery begins immediately after the sale

Gets you out of an “underwater” investment

Puts your recovery time at two to three years

All factors are known (like taxes, deficiencies, bank processes)

Cons:

Your situation may improve to where you wouldn’t have needed to sell

You have to move

Not ready, logistically or emotionally

Loss of tax deductions

Immediate change

What does all this mean? Generally speaking, it means that doing something now will force immediate change but will give you known results and a quicker recovery. On the other hand, waiting comes with a huge element of uncertainty that may leave you better or worse off and will be a much longer process.
If you have a hardship (either current or future) and your home is underwater, what are you doing for yourself by staying? You’re probably going to need five to ten years of modest gains in home values just to get back to being even with what you owe. Since you’re asking what you should be thinking about, think about where you’ll be in four years if you do something now.

In most cases, if you short sale now, you’re back to being a homeowner in two to three years, you’re able to buy a comparable home for much less, and you’ll have equity in your house with any appreciation that happens. Unless you have a very compelling reason to wait, stop procrastinating and get the next chapter of your life

Saturday, September 1, 2012

Foreclosed and pre-foreclosed homes maintained their position as the source of over a fifth of U.S. home sales in the second quarter of 2012. Twenty-three percent of all residential sales during the period were of bank-owned properties (REO) or homes in some stage of foreclosure, up from 22 percent in the first quarter of the year and 19 percent in the second quarter of 2011. RealtyTrac, an Irvine, California firm that tracks foreclosure activity, reported that an additional 14 percent of all sales were short sales, where the bank agreed to a payoff lower than the actual outstanding mortgage balance, that were unrelated to foreclosures.
RealtyTrac's second quarter U.S. Foreclosure Sales Report noted that the market share of distressed sales increased even though the actual number of those sales fell 12 percent from the previous quarter and 22 percent from a year earlier. A total of 224,429 foreclosure-related transactions were completed during the quarter.

The number of pre-foreclosure sales (short sales) continued to rise relative to sales of REO. Foreclosure related short sales accounted for 107,298 of the distressed sales during the quarter, only 9,733 fewer than bank-owned property sales, the smallest difference between the two since 2007. Eleven percent of all sales during the second quarter were pre-foreclosure sales, up from 8 percent in Q2 2011, and these outnumbered REO sales in 13 states and the District of Columbia. The 117,131 sales of REO represented 12 percent of all sales in the quarter, unchanged from Q1 and one point higher than Q2 2011.

For the first time since the second quarter of 2010 there was an annual increase in the sales price of distressed homes. The average price of $170,040 reflected a 6 percent increase from the first quarter and 7 percent from the previous year. It was also the largest bump in average price since late 2006. The average price represented a discount of 32 percent from that of a non-foreclosure home, up from a 30 percent discount in both the previous quarter and a year earlier.

Pre-foreclosure sales closed at an average price of $185,062, a five percent increase from the previous quarter which had represented a low point in RealtyTrac reporting history, but the price was still 1 percent lower than a year earlier. These sales were at an average discount of 26 percent from a market rate sale, up from a 24 percent discount in Q1 and an 18 percent discount in Q2 2011.

Bank-owned real estate sold for an average price of $155,892, 6 percent higher than in the first quarter and 10 percent above the price in the same quarter of 2011. This represented an average discount of 37 percent unchanged from the first quarter and slightly below the 38 percent discount a year earlier. The highest discounts for distressed property sales were recorded in Texas (41.64 percent) and Massachusetts (40.12 percent).
"The second quarter sales numbers provide solid statistical evidence of what we've been hearing anecdotally from real estate agents, buyers and investors over the past few months: there is a limited supply of available foreclosure inventory to choose from in many markets," said Daren Blomquist, RealtyTrac Vice President.

"Given this shortage of supply and the seasonally strong buyer demand in the second quarter, it's no surprise that the average foreclosure-related sales price increased both on a quarterly and annual basis.
"Three straight months of increasing foreclosure starts through July may ease the inventory shortage somewhat in the coming months when many of these foreclosure starts translate into listed short sales or bank-owned homes," Blomquist added. "The increase in short sales of properties that have not even started the foreclosure process indicates that lenders are moving further upstream to deal with their distressed inventory, thereby avoiding the increasingly complex and lengthy foreclosure process altogether."
Short sales took an average of 319 days to sell after starting the foreclosure process, up from 306 days in the previous quarter and 245 days in the second quarter of 2011. It took an average of 195 days for REOs to sell after completing the foreclosure process, up from 178 days in both the first quarter and a year earlier.
Pre-foreclosure sales increased on a year-over-year basis in 16 states, including Michigan (42 percent increase), Illinois (35 percent increase), Connecticut (27 percent increase) and Massachusetts (27 percent increase).
Foreclosure sales accounted for 43 percent of all residential sales in both Georgia and Nevada in the second quarter, the two highest percentages among the states despite decreasing foreclosure-related sales activity in both states.